Question

Gildan Activewear Inc. is a leading manufacturer and marketer of family apparel, including T-shirts, fleece, sport...

Gildan Activewear Inc. is a leading manufacturer and marketer of family apparel, including T-shirts, fleece, sport shirts, socks, and shapewear. Its brands include American Apparel and Gold Toe. The following data (in thousands of U.S. dollars) were taken from Gildan’s financial statements:
December 31, 2017 January 1, 2017 January 3, 2016
Cash and cash equivalents $52,795 $38,197 $50,675
Trade accounts receivable 243,365 277,733 306,132
Inventories 945,738 954,876 851,033
Income tax receivable 3,891
Prepaid expenses, deposits and other current assets 62,092 69,719 45,774
Current assets 1,307,881 1,340,525 1,253,614
Current liabilities 258,476 235,928 233,221

Calculate the working capital, current ratio, and acid-test ratio for each year. (Round current ratio and acid-test ratio answers to 2 decimal places, e.g. 1.75:1.)

December 31, 2017 January 1, 2017 January 3, 2016
Working Capital $ $ $
Current Ratio : 1 : 1 : 1
Acid-test ratio : 1 : 1 : 1
Comment on Gildan’s liquidity on December 31, 2017, compared with the two previous years.
Gildan’s liquidity

declinedimproved

from prior years.

Homework Answers

Answer #1
December 31, 2017 January 1, 2017 January 3, 2016
Working capital = Current assets - Current liabilities $1,307,881-258,476 = $1,049,405 $1,340,525-235,928 = $1,104,597 $1,253,614-233,221 = $1,020,393
Current ratio = Current assets / Current liabilities $1,307,881/258,476 = 5.06 $1,340,525/235,928 = 5.68 $1,253,614/233,221 = 5.38
Acid test ratio = Current assets-Inventories-Prepaid expenses / Current liabilities $1,307,881-945,738-62,092 / 258,476 = 1.16 $1,340,525-954,876-69,719 / 235,928 = 1.34 $1,253,614-851,033-45,774 / 233,221 = 1.53

Gildan's liquidity declined from prior years.

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